Homebuilder Confidence Lifts the Sector’s Shares

by InvestorPlace Staff | May 15, 2012 12:56 pm

Homebuilder Confidence Lifts the Sector’s Shares

Homebuilder stocks rode a wave on Tuesday that started after the latest reading on the confidence level among builders showed surprising strength. The National Association of Homebuilders[1] reported today that confidence in May among builders of single-family homes jumped to 29 from a downwardly revised 24 in April. Notes the NAHB: “This is the index’s strongest reading since May of 2007.”

Bloomberg reported[2] that the median forecast among the 47 economists it surveyed was 26. The actual reading of 29 exceeded even the most optimistic estimate.

Sounds good for sure, but don’t overlook that any number below 50 indicates overall negative sentiment. While improvement is clearly welcome, the sector has miles to go before returning to anything near normal.

Said NAHB Chief Economist David Crowe in a statement: “The pace of this emerging recovery could be stronger were it not for the significant impediments that the market continues to face with regard to builder and consumer access to credit, inaccurate appraisals, and more recently, rising materials prices.”

Still, investors focused on the glass being 29% full and pushed heartily into homebuilder stocks upon getting the May reading. Among those jumping on the news were Hovnanian Enterprises (NYSE:HOV[3]), up 5.6% in midday trading; Ryland Group (NYSE:RYL[4]), up 5.1%; Standard Pacific (NYSE:SPF[5]), up 4.8%; KB Home(NYSE:KBH[6]), up 4.7%; D.R. Horton (NYSE:DHI[7]), up 4.2%; and Toll Brothers (NYSE:TOL[8]), up 2.8%.

Today’s confidence reading is the first of several important housing market signals to be released this week. On Wednesday, we’ll also get the Mortgage Bankers Association’s mortgage loan applications index and, more important, the April housing starts statistics. Starts in March ran at a seasonally adjusted annual rate of 654,000, including 462,000 single-family starts. That was a bit lower than February’s starts. Analysts are forecasting a bounce higher in April.

If that doesn’t come to pass, today’s jump in homebuilder stocks could be fleeting indeed.

Endnotes:

The National Association of Homebuilders: http://www.nahb.org/news_details.aspx?newsID=15296